Introduction
One of the main reasons for procuring a historic assessment is to apply for nomination for historic designation (landmarking). There are potential tax incentives for buildings and sites designated on local, state and federal registers. These incentives can be arcane and confusing, with different regulations and terminologies depending on the locale, and with some of the key information buried in city code or hard-to-find PDFs. Here are the basics.
Local tax incentives in LA County
Municipal incentives for the maintenance and rehabilitation of historic properties vary widely throughout LA County. To help navigate these differences, I have prepared pages on historic designation and related tax incentives, including Mills Act, for communities throughout the county.
See the following links for the cities of Alhambra, Beverly Hills, Glendale, Long Beach, Los Angeles, Monrovia, Pasadena, San Gabriel, San Marino, Santa Monica, Sierra Madre, and South Pasadena.
For designation and Mills Act eligibility in unincorporated LA County — i.e. communities such as Altadena, East Los Angeles, and View Park-Windsor Hills that are not part of the 88 incorporated cities — go here.
Please reach out if you need help understanding the logistics and benefits of historic designation in your community.
Mills Act
Introduction
The Mills Act, as established in California Government Code Section 50280 et seq., is the most important economic incentive program in California for the restoration and preservation of qualified historic buildings by private property owners. The program is administered and implemented by local governments, not all of whom participate in the program. See the links in the section above for incentives in some LA County communities.
All locally designated Historic Landmarks, contributing resources in designated Historic Districts, and properties that are listed in the California or National Registers are qualified historic properties eligible for Mills Act Contracts, pursuant to the provisions of Article 12 § 50280 through 50289, Chapter 1, Part 1, Title 5, of the California Government Code.
If you’re in Los Angeles County, please get in touch to find out whether your jurisdiction participates in the Mills Act program, and to discuss the suitability of your property for Mills Act incentives.
Eligibility requirements
To be eligible for a Mills Act contract, your property must first be designated as a Qualified Historic Property. The rules and nomenclature vary from place to place, but as a rule a property needs to be designated/landmarked. A designated property is a privately-owned, non-tax-exempt property that is either (a) listed in the National Register of Historic Places or located in a registered historic district, or (b) listed in any state, city, county, or city and county official register of historical or architecturally significant sites, places, or landmarks.
Valuation caps (where applicable)
In many localities there is a Mills Act valuation cap — i.e. an assessed amount, according to the calculation described in the section below, above which properties are ineligible for these benefits. For instance in unincorporated LA County there is currently a cap of $2.1M for a single-family residence, $3.2M for a two-family residence, and $6.3M for other land uses. If your locale has a valuation cap and your property exceeds it, then your property is not eligible for Mills Act funding.
Income approach to valuation
As indicated in these state guidelines, the annual savings derive from the fact that valuations of properties under a Mills Act contract are determined by the income approach to value, rather than by the standard market approach. The income approach, divided by a capitalization rate, determines the assessed value of the property. In general, the income of a residential property is based on comparable rents for similar properties in the area, while the income amount on a commercial property is based on actual rent received.
The value of a Mills Act property is ultimately determined by the County Assessor. Because County Assessors are required to assess all properties annually, Mills Act properties may see slight fluctuations in property taxes from year to year.
Types of work permitted and preferred
The type of work that can be covered by Mills Act funding differs from place to place. As a rule, the regulating authorities (e.g. municipal planning departments and city councils) will likely give priority to work that be most likely to support work on preservation, restoration and rehabilitation work that
- is visible from the public right-of-way;
- corrects any critical systems or structural deficiencies;
- and/or preserves historic features of the property.
Other work, such as interior restoration or non-critical changes to the rear of a building, may also be permissible for Mills Act savings in some communities. Some localities support historically appropriate landscaping and hardscaping.
The need for qualified professionals
There is generally a requirement that the work is undertaken in keeping with the Secretary of the Interior’s Standards for the Treatment of Historic Properties, guidelines that urge property owners to consult preservation professionals early in any project. One such professional is the qualified architectural historian, who can assess evidence for the original appearance of the building. That evidence takes the form of the physical fabric of a building, along with documentary sources such as historic building permits, fire insurance maps, and aerial views. The historian will work closely with qualified fabricators (restoration architects, architectural conservators) in preparing and executing the Mills Act work plan.
10-Year contract and work plan
Mills Act contracts are made between the property owner and the local government granting the tax abatement. A contract, complete with work orders detailing renovation plans, is initially for 10 years, with automatic yearly extensions. Historic designation and Mills Act applications can be a lengthy undertaking, so make sure you start the process long before any major renovations.
The contract remains when the property is transferred, meaning that subsequent owners are bound by its terms for the duration of the contract, and they reap the tax benefits. Because the local government and the property owner negotiate other specific terms of the contract, you will need to contact your local government to determine the Mills Act rights and obligations.
Property taxes will not increase as a result of a Mills Act contract.
Go here for a successful nomination written by me (Appendix F), and for a work plan that I worked on with the client (Appendix G), along with related documents relating to a Mills Act application in the City of Sierra Madre. Bear in mind that the submission process will look different in every locality.
Obligations
When they enter into a Mills Act agreement, property owners agree to restore, maintain, and protect the property in accordance with specific historic preservation standards and conditions identified in the contract. Periodic inspections by city or county officials ensure proper maintenance of the property. Local authorities may impose penalties for breach of contract or failure to protect the historic property. The contract is binding to all owners during the contract period.
Who benefits from Mills Act contracts, and by how much?
The property owner who adheres to a Mills Act agreement is entitled to an alternate evaluation of the property for tax purposes, which usually results in a reduced property tax bill. The City of Pasadena asserts that the average benefit to homeowners of a Mills Act contract “has been a 51% reduction in property taxes, but it can vary widely.” In 2024 the average Mills Act participants in Monrovia averaged $5,183 in annual savings. Since the contracts are for 10 years, and they’re renewable, that amounts to considerable long-term savings.
Owners who have purchased historic properties in recent years at current market-rate prices are the real beneficiaries of Mills Act contracts. Owners who purchased a decade ago, or longer, are less likely to benefit since they are sheltered by Proposition 13, which protects taxes from market increases of more than 1% per annum.
Calculators for the estimated Mills Act tax adjustment are provided by the City of Beverly Hills here, and the City of Santa Monica here. The resulting rough estimates should apply to homeowners in other municipalities.
From an aesthetic and market value perspective, there is a tremendous collective benefit when historic houses and neighborhoods are responsibly maintained, with an eye to preserving character-defining features.
Federal incentives
The main tax benefit for entering a property on the National Register of Historic Places is the Federal Rehabilitation Tax Credit.
Only properties that are income-producing and certified as historic structures by the National Park Service are eligible for the Federal Rehabilitation Tax Credit. The program offers a 20% tax credit for qualified rehabilitation expenses. Rehabilitation includes renovation, restoration, or reconstruction of a building, but doesn’t include an enlargement or new construction. The credit is allocated ratably over a 5-year period on your federal income tax return.
I’m a Pasadena-based architectural historian who has written hundreds of assessments for properties throughout Los Angeles County.
If you own a property that is more than 50 years old, schedule a consultation to find out whether historic designation is right for you.